Avoiding Payday Loans

CreditPro is a new blog written by a non-profit credit counselor, and he has some harsh words about Payday loans and why they are never a good idea:

Another common problem that I encounter on a daily basis has to do with payday loans. While these may appear to be a quick and easy way to get money for rent, bills, credit cards, etc., the first loan is simply the start of a cycle where you are continually further and further behind on your payments and in need of even more money. Before you know what has happened, you are left in a downward spiral of overwhelming debt.

In most instances, my clients only need a few hundred dollars to pay their bills, so they head over to a cash advance store and put up their future paycheck in return for a no credit check loan. However, things start to get a little sticky when you discover that this place is charging an exorbitant interest rate, sometimes as much as 25% for a two week advance. To put this into perspective, if you borrow a rather modest $200, you could end paying upwards of $50 for this “quick and painless” loan. And once you have paid off your bills and repaid the loan, you may see that you are still a little short on cash due to the unexpected interest payment, so you need to take out another loan. Well, there goes another $50 dollars, meaning you just paid $100 in interest for a one month loan of $400.

Although throwing away $100 a month will not affect the livelihood of most individuals, the people who are taking out these cash advance loans are usually making minimum wage and working hard to make ends meet. It may appear that these operations are taking advantage of the low-income earners plight, but the government has said payday loan stores are not predatory and fulfill a crucial role for some people. I wholeheartedly disagree with this considering that I have seen first hand how it can destroy a family’s life.

What are the alternatives to payday lending? CreditPro suggests: Taking and advance on a credit card, asking family for a loan (in writing), contacting the companies to whom you owe money and negotiating with them, contacting a local credit union, basically anything other than using payday loans. —MEGHANN MARCO

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I get a kick out of driving by a payday loan in my town every day on my way to work…it looks like a dilapidated orange brick bomb-shelter. It provides payday loans…and they can also wash your car after December. It is tucked in the corner of a Chevron gas station parking lot.

Yup, I can’t wait to do economic dealings in that place. It’s just mind-boggling…

Unfortunately, the people that need to hear this most likely aren’t reading this blog.

There are a fair number of families who are middle/upper-middle class but living beyond their means who turn to payday loans (been there, done that). If people saved instead of spending every dollar they earned, they’d be able to weather the sort of troubles (job loss, illness, major car repair) that lead folks to payday loans.

It doesn’t take much to push a family over the brink these days, and we live in a culture that shames people who borrow from their family and instead encourages living on credit.

Why does everyone keep harping aboujt the evil “Payday Loan” guys? Just take a look at Wells Fargo Bank. They will also “loan” you money against your paycheck. The paycheck that comes into their bank from your payroll deposit. The fee for this complicated transaction? FIVE PERCENT! Wells Fargo bank is just as bad a gangster as the rest of them. Why does Wells fargo call it a fee? Hell, why don’t they just revert to their true selves and call it “the vig” like the racketeers they are?

I agree that payday loans are a last alternative but let’s at least consider the options?

Paying a $34 fee for an overdraft charge on your $20 grocery purchase at Ralph’s?

The reality is that payday loans are like taxi cabs. They can get you across town. It’s expensive but it’s convenient when you don’t have a car. Would you drive hire a cab to take you across the country? Obviously not.

Payday loans provide short term credit to those folks who need to “get a ride across town”.

Anyone who actually gets these things and rolls them over month to month is not being a responsible borrower.

Payday lending has been a lightening rod for criticism from all directions, including the mainstream media, the military, Congress, federal and state regulators, community groups, and the plaintiffs bar – to name a few.

Yet, few deny the demand for small dollar lending. Unfortunately, banks and credit unions have yet to put forth a product that competes when it comes to convenience, approachability, privacy, and simplicity.

We developed the RevelCard as a means to bring consumers an affordable payday loan alternative. The RevelCard’s “Bank on a Card” objective delivers all the common services expected at a typical bank branch through nonbank, alternative delivery channels – meeting the consumer on his/her terms and where he/she feels comfortable conducting their financial business. Features include: